What Not Buying Oil With Dollars Means(ianwelsh.net)
ianwelsh.net
What Not Buying Oil With Dollars Means
http://www.ianwelsh.net/what-not-buying-oil-with-dollars-means/
7 comments
This article strikes me as a collection of weakly-defended opinions with no real references or citations on sources of information. I could easily write a post stating the exact opposite point that would read just as well.
This piece is rather poorly reasoned. It matters very little what currency oil is priced in...oil is re-priced constantly (as is the dollar), and the dollar can readily and immediately be exchanged with euro or yen or most anything else in massive global forex markets. I can just as easily price oil in euros or in ounces of gold....it is the supply and demand for oil, and the supply and demand for dollars, that matters.
you're ignoring that demand for dollars is hugely tied to oil.
It is a keystroke to change from euro to dollars to buy oil and another keystroke for the seller to exchange those dollars for another currency. The fact that oil is priced in one currency has almost no impact on the underlying supply and demand.
The important element to the oil-dollar story is the idea of the Gulf States opting to leave the American sphere and the sense of American decline.
The important element to the oil-dollar story is the idea of the Gulf States opting to leave the American sphere and the sense of American decline.
It's a play on words, but I believe "priced in dollars" means oil payments made in dollars. In other words, the currency you need to have on hand to trade with. See the article linked below:
Excerpt: "Brazil has shown interest in collaborating in non-dollar oil payments, along with India."
http://www.businessweek.com/globalbiz/content/oct2009/gb2009...
Also, Saddam Hussein was threatening to take payments for oil in euros...
Excerpt: "Brazil has shown interest in collaborating in non-dollar oil payments, along with India."
http://www.businessweek.com/globalbiz/content/oct2009/gb2009...
Also, Saddam Hussein was threatening to take payments for oil in euros...
right, but with millions of transactions a day this serves to boost aggregate demand for dollars, since currency is constantly being traded into it for a commodity which is then consumed.
Except that if oil is priced in dollars and you have a dollar printing factory then oil is effectively free to you.
If my ISP accepted pictures of my cat rather than insisting on pictures of president Jackson it would make a big difference to me.
If my ISP accepted pictures of my cat rather than insisting on pictures of president Jackson it would make a big difference to me.
> Except that if oil is priced in dollars and you have a dollar printing factory then oil is effectively free to you.
That's not exactly how it works (although that edge helps keep our oil cheap). The more money that is in circulation (printed) the less value to each person that holds it. Imagine a game of Monopoly where everybody had as much money as the Bank; nobody would have much spending power. When this happens in the real world, such as the 90's in Argentina, in Zimbabwe, and elsewhere throughout history, it's called hyperinflation. The U.S. has uniquely been able to get away with excessive printing because of the dollar hegemony, a good credit rating - "backed by the full faith and credit of the U.S. governement" - from having a stable government, and dominating the world economy. But we're not invincible... even Rome fell.
That's not exactly how it works (although that edge helps keep our oil cheap). The more money that is in circulation (printed) the less value to each person that holds it. Imagine a game of Monopoly where everybody had as much money as the Bank; nobody would have much spending power. When this happens in the real world, such as the 90's in Argentina, in Zimbabwe, and elsewhere throughout history, it's called hyperinflation. The U.S. has uniquely been able to get away with excessive printing because of the dollar hegemony, a good credit rating - "backed by the full faith and credit of the U.S. governement" - from having a stable government, and dominating the world economy. But we're not invincible... even Rome fell.
The USA has been able to get away with printing dollars because it sold things people wanted (an had to pay for in $) - the article alleges that this is no longer true.
There is nothing so significant the US exports which allows free reign printing of dollars. The US doesn't sell it buys - in fact it's the highest consuming country in the world. Even if there were exports the US could sell there is nobody which can afford to buy significantly. That's the economic drawback of having the near top currency.
I think it is related to http://en.wikipedia.org/wiki/Opportunity_costs
A similar topic was posted to HN here:
http://news.ycombinator.com/item?id=863435
In that thread my comments match fairly closely with this author's predictions starting near the bottom of the article section "Are the Dollar’s Days as Reserve Currency Over?" including my comments [..maintaining reliance on oil means gas prices comfortably around $10 (or more) along with the corresponding inflation and further vanishment of any middle class. An unemployment rate of 10% would begin to look normal...The trade-off is less spending power, which means our economy must shift away from being spending based. People will kick and scream when that realization hits but America simply won't continue to dominate the world economy.]
http://news.ycombinator.com/item?id=863435
In that thread my comments match fairly closely with this author's predictions starting near the bottom of the article section "Are the Dollar’s Days as Reserve Currency Over?" including my comments [..maintaining reliance on oil means gas prices comfortably around $10 (or more) along with the corresponding inflation and further vanishment of any middle class. An unemployment rate of 10% would begin to look normal...The trade-off is less spending power, which means our economy must shift away from being spending based. People will kick and scream when that realization hits but America simply won't continue to dominate the world economy.]
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The FED is walking a tightrope with the rest of the world right now, but it should be more afraid of it's own citizens.
I know 29% inflation over 10 years is chafing MY hide and it's all due to the FED's policies.
I know 29% inflation over 10 years is chafing MY hide and it's all due to the FED's policies.
That's about 2,6% a year. Not bad, actually.
The average inflation is even actually 2,33% per year. Take tenth root of 1,26 . But you are right, not bad.
Given the fact that we were eyeball-to-eyeball with some serious deflationary pressure I think that this is probably a much better alternative :) The fact that the CPI did not go up and we are actually thinking of sending "sorry there was no inflation this year to bump your COLA" checks to millions of people puts some of this into a slightly different perspective.
No, not if you don't mind loosing a lot of money, then it its okay.